When it comes to creating and dominating new markets, you can learn a lot from how Apple took on Sony…and won. This is the Apple story, told from a strategic marketing point of view.
1997: Apple’s turning point
In 1997 Apple was in shambles. That was the year that Michael Dell, following in the footsteps of a brilliant distribution strategy and booming laptop sales, declared that if he ran Apple, he would shut it down and pay back shareholders.
In 1997, Sony had by far the best reputation for innovation in consumer electronics. Sony had the talent in products, marketing and engineering, as evidenced by a legacy of runaway hits in consumer electronics. It was already in the PC market, as well as the entertainment and content markets through Sony Entertainment. Sony had global distribution that was second to none and their marketing and advertising was simply brilliant.
In 1997 two totally independent events were taking place. The Asian financial crisis was in full swing and Steve Jobs was back at the helm of Apple, via Apple’s NeXT acquisition, after a 12-year absence from the company he had co-founded and was now swamping. Apple noted the strategic implications of the downward spiraling Japanese economy and how they would affect the world’s darling of branded consumer products: Sony.
In Jobs fashion, he flung open Apple’s corporate doors to innovative strategic thinking and brilliant execution. He rewarded him with programs like Apple Fellows. In addition, Jobs did what few CEOs are able to do…encourage innovation toward a clear and ambitious goal. In Apple’s case, the goal was to create and dominate a profitable segment of consumer electronics and related businesses, while the rest was handed over to hopelessly entrenched competitors like Sony.
Since Jobs’ return, Apple has outpaced conventional thinking time and time again, creating and sustaining amazing value for consumers around the world. Here are just a few brilliant marketing moves that any business can replicate in any industry. These moves transformed Apple into what Fortune magazine tells us was the world’s most admired company in 2010. Just as it was in 2009 and 2008.
Apple Marketing Strategy
From a strategy standpoint, Apple noted that Sony could not decouple its innovation engine from its freight train of legacy products because it was forced to deliver incremental innovations to continue selling money-losing products such as televisions, CD players, etc. and others, just to retain distribution and manufacturing volume. . Sounds familiar?
At the time, large retailers required consumer electronics manufacturers to offer a broad and varied product line for retail differentiation, as well as upsells and add-ons. The ensuing complexity of the product line was like a cancer, steadily eating away at the profits of volume-addicted manufacturers like Sony, Philips, Thompson, and others. All of these publicly traded companies were heavily reliant on volume and any significant distribution loss would cause those business models to collapse. Jack Welch recognized these money-losing wives early on and came out of consumer electronics.
Also, as the Japanese economy continued to slump, Sony was becoming more entrenched and bureaucratic, putting it at a competitive disadvantage in tackling any new trends.
Apple’s great ability to create strategies
Recognizing trends, even when your competitors don’t, is just the first step. With few exceptions, it takes creativity to visualize what the trends imply for a target market or industry. After that, it takes concentration and carefully applied effort to generate profit from those implications. Apple’s secret sauce was its ability to think through the implications of trends that anyone might have seen at the time.
Specifically, Apple noted that no other competitor was addressing product reliability issues created by combining hardware, software, and operating systems from separate companies to create a PC or laptop. With an enthusiastic vision of simplifying creativity for innovative users, Apple built a moat around its new iMac by becoming the only PC maker with homegrown hardware, software, and operating systems. The iMac was introduced in 1998 and the OS X platform in 2001. Apple then went to work on profitable product line extensions and profitable satellite businesses that orbited around the iMac.
A key trend Apple noticed was a growing preference for personalization and that the microchip, data storage, and entertainment industries were running parallel. The company responded by introducing the people-driven i-brand strategy. Apple introduced the iPod and the Apple Store in 2001. iTunes followed in 2003. The Apple Store ushered in an entirely new make-to-order strategy and other profit-enhancing platforms. In the center, still, was the iMac.
Apple noticed a growing trend in consumer audio and video production. The company introduced iMovie in 1999, followed by Garage Band and iPhoto in 2002. All three were optimized for the iMac. Apple noted that technology trends were mixing PCs, laptops, mobile devices, and consumer electronics. The iPhone and Apple TV were introduced in 2007. Apple also saw the potential of mobile computing, introducing the App Store in 2008 and the iPad in 2010. Once again, they all revolved around the iMac.
Customer Loyalty: Creation of the Apple Tribe
At a time when Sony was making missteps in marketing and advertising, Apple started hitting home runs. In addition to the success of one product after another, Apple continually grew its tribe by:
- Partnering with archenemy and brand powerhouse Microsoft to introduce Microsoft Office for Macintosh and allowing Microsoft to invest $150 million in non-voting Apple stock.
- Partnership with the powerful global chip brand Intel. By 2006, the entire Mac product line had transitioned to Intel microprocessors.
- Partnering with leading peripheral, photography, entertainment, and software companies to make iMac products compatible.
- Foster the fandom of the Mac tribe with conferences, Mac user groups, and other ways to connect the growing group of loyalists with each other and with the company.
- Create clever advertising that continually positions the company as anti-mainstream, appealing to Apple’s target market of early adopters, innovators, and mainstream defectors.
Fortune names Apple the world’s most admired company
It would seem that Sony should have invented the iMac, the iPod, and the giant of innovative products and distribution. Since then, Sony has reinvented itself and has had several successes. However, it still plays a distant second fiddle to Apple. Apple’s market capitalization is ten times that of Sony’s.
Sony is a great example of a very popular company that had it all, but was either handcuffed by product strategy or too distracted by noise to pay attention to trends and trend drivers.
Today, although Apple’s revenue is lower, its market capitalization is larger than Walmart and Microsoft. This tells us that investors are pouring big money into innovation, not size.
Apple continues to hit the long ball. Apple employees thrive on the company’s rare culture of trend-driven strategy and brilliant product and distribution innovation.
The result is that Apple has an innovative and focused business model that eagerly seeks trends, understands them, and responds quickly. For the foreseeable future, this will virtually guarantee a continuous new stream of innovative new products, markets, partnerships, distribution and more.
Investors see this and are betting money on Apple’s ability to continue creating new markets. The return has been healthy.
